Plasterers' Local Union No. 96 Pension Plan v. Pepper
663 F.3d 210
4th Cir.2011Background
- ERISA fiduciaries Pepper and Lertora supervised the Plan investments from the 1990s until 2004–2005 and were Trustees on the Board; the Board adopted a conservative CD/Treasury bill strategy investing mostly under $100,000 CDs and 1–2 year Treasuries through 2005.
- The Plan suffered substantial losses prior to 1987 and the Board sought to avoid losses by limiting risk, repeatedly investing in low-risk instruments without diversification.
- The district court found a breach of fiduciary duties to investigate investment options (B) and to diversify (C), but did not separately analyze causation or prudence of actual investments.
- Cairns (current Trustees’ expert) and Taylor (former Trustees’ expert) offered competing views on prudent asset allocations; Cairns proposed a 50/50 S&P 500 and Barclays Bond Index mix showing a larger hypothetical gain, while Taylor defended the Board’s conservative approach given Plan characteristics.
- Damages were calculated using a three-year period (2003–2005) based on Cairns’ model, and the district court awarded fees under ERISA §1132(g)(1); on appeal, the court found reversible errors on liability, damages, and fees and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether there was proper causation tying breach to actual losses | Pepper argues breach to investigate/diversify does not equal loss causation; damages require actual loss from imprudent investments. | Lertora contends the district court’s damages based on hypothetical prudence are legitimate under ERISA. | Damages must be tied to losses actually resulting from the breach; causation analysis required on remand. |
| Whether the district court properly analyzed prudence and causation under §1104(a)(1)(B)-(C) | Former Trustees contend district court failed to find that investments were imprudent, only that there was a breach. | Current Trustees argue that investigation/diversification breaches presumptively support liability. | Remand required to determine prudence and whether breaches caused losses under §1104(a)(1)(B)-(C). |
| Whether damages were properly calculated over an appropriate time period | Damages should reflect periods where breaches affected investments; three-year window arbitrarily chosen. | Either party may justify other periods (e.g., six years) as appropriate for ERISA limitations. | Time-period for damages must be clearly articulated; remand to determine a principled period. |
| Whether ERISA §1132(g)(1) attorneys’ fees were properly awarded after reversing liability/damages | Fees should reflect Hardt and Quesinberry with appropriate consideration of ability to pay. | Fees should be awarded if eligible and reasonable under established factors. | On remand, apply Hardt first, then Quesinberry factors; original fee ruling reversed for lack of proper analysis. |
| Who bears the burden of proving causation of losses | Plaintiff must show loss resulted from breach; causation is necessary for damages. | Burden may shift depending on governing circuit approach; the district court did not resolve this. | Remand to determine which party must prove causation and apply the appropriate standard. |
Key Cases Cited
- DiFelice v. U.S. Airways, Inc., 497 F.3d 410 (4th Cir.2007) (prudence includes thorough investigation and review of options)
- Wright v. Oregon Metallurgical Corp., 360 F.3d 1090 (9th Cir.2004) (judicial focus on methods used to investigate merits of investment)
- In re Unisys Sav. Plan Litig., 74 F.3d 420 (3d Cir.1996) (prudence measured by whether appropriate methods were used to determine merits)
- Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270 (2d Cir.1992) (causal link between breach and loss required for damages)
- Kuper v. Iovenko, 66 F.3d 1447 (6th Cir.1995) (failure to investigate alone not sufficient; must show loss tied to breach)
- Gold v. Finkelstein, - (-) (not used (example placeholder; not from opinion))
- Williams v. Metropolitan Life Insurance Co., 609 F.3d 622 (4th Cir.2010) (Hardt analysis governs eligibility for fees; post-Hardt guidance applied)
- Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017 (4th Cir.1993) (five-factor test for awarding attorneys’ fees in ERISA)
- Hardt v. Reliance Standard Life Ins. Co., --- U.S. --- (2010) (Supreme Court on attorneys’ fees eligibility under ERISA)